RE WING FAT SECURITIES LTD

HCMP 1036/2021

[2021] HKCFI 3851

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1036 OF 2021

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DECISION

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Introduction

1.  The applicant is a securities broker. It has a long history in Hong Kong. It was incorporated in 1987. At that time, it took over the business of “Wing Fat & Co”, which was established in around 1970. The applicant had been carrying on securities brokerage business.

2.  On 24 October 2019, the board resolved that it would cease operation by 31 January 2020. Since then, efforts have been made by the applicant to inform its clients of the decision to cease business and to return the assets to them.

3.  Notwithstanding such efforts, cash of about $2.1 million and securities (Hong Kong listed shares) in the value of about $3.9 million (as of 30 June 2021) remain unclaimed by the clients. Ms Euchine Ng, counsel for the applicant, has referred to them as “the unclaimed assets”.

4.  Among the unclaimed assets, a portion belong to clients who have indicated to the applicant in writing that they would give up or abandon their securities and any associated rights. They comprise mostly delisted shares. Ms Ng has referred to this portion of the unclaimed assets as “the abandoned securities”.

5.  Apart from the abandoned securities, the unclaimed assets belong to clients who could not be contacted or who could be contacted but failed to give proper instructions as to how to deal with the unclaimed assets. There are also clients who had passed away, with some of them without any personal representatives appointed for the estate.

6.  There are a total of 49 clients to whom the unclaimed assets belong.

7.  There are four clients whom the applicant has no means of contacting as it has maintained no mailing addresses for them on its records. According to the applicant’s affirmation evidence, it may have been the case that these accounts were opened a long time ago without any formal client agreements or that the client agreements were lost.

8.  According to the applicant’s records, save with two exceptions, all the clients have Hong Kong addresses as their correspondence addresses. Many of these clients opened their accounts quite some time ago. I am informed at today’s hearing that most of them go back to more than 10 years ago.

9.  Against the above background and in order to properly complete its cessation of business, the applicant commenced the present proceedings by an ex parte originating summons on 23 July 2021 to apply for reliefs under sections 56 and 62 of the Trustee Ordinance, Cap 29. The orders sought are to the effect that (a) the applicant be allowed to sell or dispose of, including forfeiting, the abandoned securities and those unclaimed assets which cannot be paid into court, and (b) the applicant be allowed to pay the rest of the unclaimed assets into court.

Legal principles

10.  As regards the application under section 62, I would apply the approach which I set out in Re K&R International Ltd [2021] 2 HKLRD 47, paras 39 to 55.

11.  As regards the application under section 56, I would follow the approach set out in Re Piper Jaffrey Asia Securities Ltd (in liquidation) [2013] 2 HKLRD 835 and Re A One Investment Co Ltd HCMP 1518/2013, 23 October 2013.

Discussion

12.  I am satisfied that the applicant holds the unclaimed assets on trust for the clients.

13.  Some of the clients opened their accounts with the applicant in the 1970’s and 1980’s when, according to the applicant, it was not the industry practice to put in place formal client agreements. Since about 1993, when a new client opened an account, the applicant would enter into a standard form client agreement with the client. Over the years, three versions of standard forms had been used. The language used in the standard forms makes it plain that the applicant holds the clients’ assets on trust for them. In any event, as a general rule, in a broker and client relationship, the broker holds the client’s assets on trust for the client: Re Drake & Morgan Ltd HCMP 1490/2009, 27 August 2009, para 12; Re Peregrine Brokerage Ltd [2004] 1 HKLRD 856, paras 9 to 13.

14.  Here, there is nothing in the evidence to displace the above general rule, even in cases when there were no client agreements put in place.

15.  I am also satisfied that this is a proper case to grant the relief sought under sections 56 and 62, save for the relief sought with regard to the abandoned securities.

16.  The evidence shows that the applicant has made extensive and continuous efforts over the two years from late 2019 to October 2021 to notify the clients of its cessation of business and to return the client assets. These efforts included five rounds of letters sent to the clients by post, two rounds of telephone calls and two rounds of newspaper notices.

17.  As a result of such efforts, the applicant has successfully returned assets to some of the clients.

18.  Nonetheless, there remain 49 clients whose assets remain unclaimed.

19.  Among the 49 clients, 36 of them have not responded to the applicant’s repeated requests despite the delivery of the notices via various means. In some cases, mails to their last known addresses were returned; in some other cases, there was no reply. In my view, it seems unlikely that these 36 clients have any intention to or are likely to retrieve their assets, whether now or in the future.

20.  Four clients (out of the 49) are not contactable, as the applicant does not have their addresses on its records. The total value of their unclaimed assets amount to about $120,000. I am informed at today’s hearing that there had been no activity for these four accounts for about 20 years. In these circumstances, it seems to me unlikely that these four clients would come forward at any time to retrieve their assets.

21.  There is a further group of clients comprising seven individuals who have passed away. No proper instruction could be obtained. In some cases, no personal representatives have been appointed. In some other cases, those who should be in a position to deal with the estate did not come forward to give any proper instruction. For these clients, it seems, again, not likely that their estate would come forward any time soon to retrieve the assets.

22.  There is one exception in which the applicant has been informed that the estate of the deceased is involved in a probate action in HCAP 1/2021. The solicitors acting for one of the parties to that action wrote to the applicant proposing that the unclaimed assets of the deceased should be paid into court pending the outcome of the probate action.

23.  Lastly, there are two corporate clients who have not responded to the applicant’s repeated notices.

24.  In the circumstances, I am of the view that leave should be granted to the applicant to pay these unclaimed assets into court. I am satisfied that the applicant has taken all reasonable steps in an attempt to return all client assets. With its conscientious efforts, there now only remains a small group of clients who have not retrieved their assets. Save with the isolated case involving a current probate action, it seems unlikely that they will come forward to claim them at any time now or in the future. The payment into court sought by the applicant would facilitate it to wrap up the cessation of its business.

25.  Over the past two years, multiple rounds of notices have been sent, and ample time given, to the clients. The applicant is not reasonably expected to take any further steps in this return exercise. The payment in mechanism is properly invoked and should be granted.

26.  As far as the abandoned securities are concerned, they are primarily shares which have been delisted or shares of companies which are currently undergoing litigation. The shares are of no or minimal value. For reasons similar to those set out in Re Piper Jaffrey, it is not feasible to lodge these shares into court. The reason is broadly as follows.

27.  I am told that all the shares held by the applicant on behalf of the clients are held in the Central Clearing and Settlement System (“CCASS”) of the Hong Kong Securities Clearing Company Limited (“HKSCC”).

28.  For the applicant to effectively lodge these shares with the court, it will first have to withdraw the shares from CCASS. This would involve CCASS issuing the physical share certificates in the name of HKSCC Nominees Limited. The applicant will then arrange for the share certificates to be registered in the name of the Registrar of the High Court. Such physical certificates can then be lodged into court.

29.  However, for companies whose shares have been delisted, the share registrars of those companies are no longer providing any services, including the issuance of new physical certificates. Hence, in these cases, the applicant now seeks leave from the court to sell or otherwise dispose of them, including forfeiting them, under section 56.

30.  Section 56(1) provides as follows:

“Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, expenditure, or other transaction, is in the opinion of the court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument, if any, or by law, the court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, if any, as the court may think fit and may direct in what manner any money authorized to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.” (underline added)

31.  The holders of the abandoned securities have confirmed in writing that they would give up the securities and any associated rights. I reproduce below the written confirmation:

“本人／吾等＿＿＿＿＿，客戶號碼＿＿＿＿＿現確認由即日起放棄本人／吾等存托在永發証券有限公司之股票________一切擁有權並放棄由即日起此股票可能產生之一切價值及/或收益及/或任何權益，因本人/吾等知悉該等股票現無任何價值，且亦不能提取，本人/吾等同意並授權永發証券有限公司以任何方式處理此股票，在確認並簽妥此同意書後，本人/吾等將不能以任何形式向永發証券有限公司追討此股票可能產生之一切價值及/或收益及/或任何權益。”

32.  In order to seek relief under section 56, the applicant should demonstrate that, first, there is no power vested in it as trustee to dispose of the assets and, secondly, it is expedient for the court to confer that power on it: see Municipal and General Securities Co Ltd v Lloyds Bank Ltd [1950] 1 Ch 212 at 225 (an English case on the equivalent provision in section 57 of the Trustee Act 1925). The rationale seems plain enough. If the trustee has the power to do the act in question in the first place, it would be unnecessary to invoke the process of the court in the administration or management of the trust.

33.  Here, the applicant has received the express authorisation from the clients of the abandoned securities to dispose of them in any way. As such, in my view, the applicant has the power to do so. It does not therefore come within the scope of section 56. As these clients have authorised the applicant to deal with the assets, that should be the end of the matter. Section 56 is not engaged.

34.  As observed by Louis Chan J in Re Piper Jaffrey (at para 6):

“If the customer should still be in touch with the share broker, the customer would usually waive such delisted shares and no problem would arise. However, in the present case, the customers in question have not responded to the repeated requests of the company for instructions.”

35.  In that case, an order was granted under section 56. The present case in relation to the abandoned securities is the opposite scenario. I decline to grant an order in this respect.

36.  At today’s hearing, on my indication that I am not inclined to grant the section 56 relief, Ms Ng invites me instead to make a declaration that the applicant is entitled to dispose of the abandoned securities, including forfeiting them. The declaration is needed, Ms Ng submits, because the applicant anticipates that there may be difficulty with HKSCC when the applicant requests them to write off the abandoned securities. The applicant is concerned that HKSCC may refuse to do so in the absence of a court order and this would prevent the applicant from properly completing its cessation exercise.

37.  I have already stated my view above that the applicant has the power to dispose of the abandoned securities on the strength of the clients’ express authorisation. At this stage, I do not therefore think that the difficulty envisaged by the applicant is a real one or is in any event justified. I therefore would not exercise my discretion to grant the declaration. But I will grant general liberty to apply.

38.  However, in respect of the other unclaimed assets where (a) the clients have not signed any express authorisation, and (b) it is not feasible to lodge those assets with the court, I am satisfied that section 56 is engaged and it is expedient for the court to make the order.

Orders

39.  I make the following orders:

(1)  It be declared that the unclaimed assets as set out in the Annexes to the originating summons are held by the applicant as trustee for each of the named clients set out therein.

(2)  The unclaimed cash as set out in Annex I to the originating summons be paid into court.

(3)  The unclaimed securities as set out in Annex II to the originating summons (whether held in the applicant’s name or in the name of others) be paid into court by:

(a)  obtaining the physical share certificates from CCASS;

(b)  registering the certificates in the name of the Registrar of the High Court of Hong Kong; and

(c)  depositing the same with the Registrar of the High Court, provided that the above is feasible.

(4)  The applicant do have leave to sell or otherwise dispose of (including forfeiture thereof) as it sees fit:

(a)  The unclaimed securities as set out in Annex III to the originating summons (as revised at the hearing) (whether held in its own name or in the name of others);

(b)  The unclaimed securities as set out in Annex II to the originating summons (whether held in its own name or in the name of others), the physical share certificates of which could not be withdrawn; and

(c)  The unclaimed entitlements as set out in Annex IV to the originating summons (as revised at the hearing),

and to pay any proceeds from the sale of any such unclaimed securities into court.

(5)  The applicant do pay into court dividends, if any, received by the applicant in respect of the unclaimed securities as set out in Annex II and Annex III to the originating summons (as revised).

(6)  A notification of this order and the rights of the clients of the applicant as set out in the Annexes to the originating summons to apply for payment out of their respective unclaimed assets under Order 92 of the Rules of the High Court be given by way of advertisements in a Chinese-language and an English-language daily newspaper in Hong Kong within 14 days from the date of this order, and by way of letters to such clients at their last known addresses (if any) by post.

(7)  A declaration that, upon compliance with paragraphs (1) to (6) above, the applicant be discharged from any obligations or claims in respect of the unclaimed assets and Order 92, rule 4 is deemed to have been complied with by the applicant.

(8)  There be no orders as to costs.

(9)  Liberty to apply.